Hartig prepares for company's 2nd century

by BRIAN COOPER
Dick Hartig, who as a young man eschewed the family business, is positioned to lead it into its second century.

In 1904, his grandfather opened his first Hartig Drug Co. store at First and Locust streets in Dubuque.

Here are highlights of the Telegraph Herald's recent interview with Hartig.

TH: I noticed in your company history that you have the second-oldest continuously operated family drug store chain in the country.
DH: We are second, behind Bartell in Seattle. George Bartell's family has been in business around 113 years.

I think a lot will realize that we've been around a long time, but I don't think very many really realize what it takes to sustain that.

Richard J. Hartig Age: 53. Occupation: Owner and chief executive officer, Hartig Drug Co. Inc. Licensed pharmacist. Education: Bachelor of science in pharmacy, Drake University, 1973; master of business administration, Drake University, 1981. Family: Wife Brenda and sons Charles and Wesley. Community leadership: Director, American Trust and Savings Bank; director, Finley Health Foundation; Hillcrest Family Services; Hills and Dales Child Development Center; Northeast Iowa Council, Boy Scouts of America; music liturgist and eucharistic minister, St. Columbkille's Catholic Church. Professional leadership: McKesson National Independent Advisory Board; adjunct faculty member and chair of National Advisory Board, Drake University College of Pharmacy; local, state regional and national pharmacist associations. Hobbies and interests: President, 990 Club, Dubuque Shooting Society; and past president, U Tell 'Em Tips Club.

In 1970, my father bought the company from Dave. They were 50-50 partners pretty much.

TH: They were brothers?
DH: Brothers. There were three Hartigs. My dad, Ken; my uncle, Dave; and their sister, Marian.

To go back to ancient history here, but my grandfather was one of two children. His father was Richard. Richard was duck hunting down south of Nine Mile Island with his dog. And his boat.

They were coming back and a storm came up and the boat capsized and several men died in this tragedy. One of them was my great-grandfather Richard. His wife was pregnant with child, which was my grandfather. My grandfather was actually raised by an aunt, so he went through this period where he was basically an orphan.

He went to Northwestern in 1899, I believe - 1898 or 1899 - and enrolled in pharmacy school. While he was in pharmacy school, when he came back to Dubuque from Chicago, he would work at this drug store. And the name of this drug store was Ruete.

Mr. (Theodore) Ruete was a chemist - they called them chemists back then - and he was very prominent in Dubuque. He wrote my grandfather these letters. These letters basically said, "Albert, you're an honest and trustworthy guy, and I would like you to buy my chemistry shop." And, of course, my grandfather, had no money whatsoever; it was just a dream, basically.

It ended up that Mr. Ruete got sick, got ill, toward the end of my grandfather's education. He offered my grandfather the opportunity to buy his store as soon as he got out of the pharmacy program at Northwestern if he would pay Mrs. Ruete $500 a month to live on.

Remember, this is 1904. That was quite a tidy sum. But everything else that he could do in his business he could keep, and that's how Hartig Drug was founded. The summer of 1904.

I think when you look at the hundred years, a lot of people think, "A company with the same name, there's no dues to pay," it's like an inherent right because you're the offspring of the founder or the owner.

I had eight brothers and sisters. If their father owned it, they would be entitled one-ninth of whatever he had amassed in his lifetime. So in order to buy a company from a family, you really have to continually rebuy the company. Every generation.

In my case, the company had to appraised. The value had to be set and the new generation, my generation, had to rebuy the company all over again. That took me from 1983 until 1993 to pay for it.

TH: Even though you went to pharmacy school, there was a clear moment of decision for you where you thought maybe you didn't want to into the family business.
DH: Well, the truth is I really didn't want to go into the family business because my father had given a brother of mine an opportunity to work here, and I could see history repeating itself in that my father and his brother were in the business together, not always in an agreeable sort of way, for their whole lifetime. I really didn't want to have any part of that.

You can love someone as a brother or a sister and you can have a totally different take on how things should go in terms of running a business.

TH: So you were...
DH: So I could see that happening, shaping up. In my last semester of pharmacy school, I had been accepted for my graduate study in business, and I had been accepted to Drake's Law School.

Then suddenly in January of '73, he died. I mean, 54 years old, he just died. Had owned the company for only three years and had built several stores. There were some significant liabilities.

Of course, my mother didn't put any pressure on me whatsoever. But the guilt was just overwhelming, because I was the only person in our family who was in pharmacy and interested in pharmacy.

TH: Your stores now have the USA Drug affiliation. What is that relationship?
DH: My concentration has always been on pharmacy. I had met a guy, a pharmacist - Steve LaFrance is his name - and his concentration was always on buying. We met and just hit it off. He's my best friend.

I convinced him that with a name like USA Drugs, why couldn't we compete successfully with Walgreen's and CVS and Rite Aid? Why couldn't we take a name like USA and set up a franchise- type model but also give an independent pharmacist an opportunity to buy direct?

It's not a mature franchise. We've got a long ramp- up. His stores are doing very well and my stores are doing very well. We're not in any hurry, obviously, to become the world's largest drug chain.

The analogy I draw is Walgreen's was founded in 1903. They just opened their 4,000th store in San Mateo County, Calif. We were founded a year later and we have 12. And we're not in any big hurry because the motivating factor behind what I do is to be conservative, to be stable, yet offer a symbol to my employees and co-workers and partners that this is a place that you stay for life.

It's been amazing to me, but we've gotten so many people from ShopKo and Wal-Mart and big boxes where they have terrible hours and no family life and no this and no that. We've gotten them based on our culture.

They're all saying, "Hey, I've had enough." I have my president (Keith Bibelhausen), who came to me and said, "I'm done with public companies. Been there, done that. Got the T-shirt on that. They lay off 11,000 people and I'm one of them. Now what do I do?"

We don't do that here. I've never laid off a person. At times, we don't fill positions after they become vacant, but we don't lay people off. We either redeploy or offer redeployment.

TH: Your mission statement includes the statement that you expect your employees to "exceed customer expectations." What are examples of meeting that particular point of the mission statement?
DH: I'll give you an example from yesterday, OK? A patient comes into the pharmacy and says, "I think the price on this drug is higher than it is at XYZ store."

Now typically, in a large chain environment, you pay what it says. If it says it's 12 bucks, it's 12 bucks. If you say, "Well, I can buy it for $10.50 down the street," the large chain says, "Goodbye." In our company, people on the front lines are empowered to make decisions that are good decisions.

Our policy is never to run a customer away. I'll match that price, whatever that price was.

If you find a person in your organization who doesn't do that, or you find out about a situation from a friend or a friend of a friend, I don't pitter patter around about it. I call the customer. I call customers every day. I say, "What happened? That's just not what we do here."

These things are all old-fashioned things that I've done for years, but sometimes it's very difficult to monitor quality in a retail environment because you've got so many people, so many different things going on. But once it's in the culture, it's a lot easier.

That's been our savior really; that's been our hallmark. People do come into our stores with a higher expectation.

TH: Have customers changed over the years?
DH: A lot.

TH: In what ways?
DH: Well, our customer is about 47 years old, she's female, she comes in about every 10 days, 67 percent of whatever she buys she didn't plan on buying, so she's highly impulsive.

So display and changing product is very important in the drug store business. You've got to constantly change your end caps and your signage. You've got to offer something that's unique.

That's why we like our stores because we're seasonal. Yesterday, Easter came down. Summer is going up. Valentine's Day is over. Red comes down. The egg baskets go in. We like that part of our thing because it changes our look. Ten days after today, she's going to come back and want to see something she didn't see 10 days ago. She's extremely impulsive.

And the other thing we like about the retail drug store business is we're not real high priced. Nobody comes into our store and thinks they got a bad deal. In fact, we try to position ourselves so that every time a patient or customer walks in, whether it be for a prescription or something in the front of the store, they walk out with a good deal.

So we always have good deals. They're usually on the end caps.

TH: The end cap is the display at the end of each aisle?
DH: Right.

Our customer, besides being impulsive and primarily female, one of the other pieces that we're seeing a change in is our elderly customers.

There's a tremendous opportunity for companies that are down on the corner because they (elderly) do not like to go to the Big Box. They don't see it as a treat spending a half-hour getting in and out of a store and pushing a cart around for miles and miles. They see it as a kind of an obnoxious exercise.

We try to make sure that they don't go to another store. That we take care of everything they need immediately. So we have seen kind of an interesting shift back to concentration on the elderly.

Then the new generation, the younger generation. The concerns that many retailers have is how do we attract youth, teens and get their shopping habits attuned to what we're doing? How do we tell them that we're a good place for teens to shop? We've tried to actually move our merchandise mix around a little bit.

TH: You mentioned names of some competitors, and one of the biggest is Walgreen's. I read a book not long ago called "Good to Great..."

DH: "Good to Great." I read the same book.

TH: Now you've got a Walgreen's right across from you, at JFK and Asbury. How does a chain family business your size compete with the largest drug company in the United States?
DH: In the world. Well, Walgreen's with 4,000 stores runs a very nice store. I mean, they run a very nice drug store.

They spend an enormous amount of money for locations because they're in the convenience business. We spend as much as we can afford for good locations because we're in the convenience business.

The way we compete with Walgreen's is do the same things they do better. And when I say that, I mean, it's about people. It's about price. Our prices are less than Walgreen's.

We also offer, I think, some unique services. You don't see a U.S. Post Office in a Walgreen's. We make a big commitment to one-hour photo. And our price is exactly the same.

The nice thing about the pharmacy business, whether we like it or we don't like is it's a third-party business. Generally, you'll hold in your wallet a card that allows you to pay a co-payment on your prescription, whether it be $5, $10 or $20. And it really doesn't make any difference how much the prescription actually costs your employer - you pay $10 or $20. So where are you going to go? You're going to go to the place where the people are professional and friendly and nice and it's convenient and they're open and they're available and they call, "Hey, Brian, good morning!" We do a very, very good job of that.

So when we bring in a new patient or a new customer, we take care of them. We do a good job. Luckily, our competitors, Walgreen's being one of them, don't do as good a job at that.

They've got a better looking store. They've got a drive-up window. We don't have a drive- up. We've got better people. I don't know, if we ever lost that edge, how we would do against them.

TH: Are pharmaceuticals fairly priced in this country?
DH: No.

TH: Why not? How are they unfair?
DH: The problem in our country with regard to the entire drug industry is we have a huge political lobby, the Pharmaceutical Research and Manufacturers Association.

They pay a huge amount of money(lobbyists and campaign contributions) to protect what? To protect their bottom line. And what is their average bottom line? Twenty-four percent.

What does the average drug store in the industry make on sales? One-point-four percent. We go round and round with pharmaceutical manufacturers, who say, "Well, you should take it away from the pharmacists."

Of every dollar that we sell from our pharmacy, 81.5 percent is the cost of the drug. So we only control 18.5 percent of the cost of the retail sales price. And from that 18.5 cents, we have to pay the heat, lights, the salaries, the rent, the overhead, the insurance. If we're doing the best job we can do, we can get 1.4 left over for us, return on our investment.

What's wrong with that picture is every time everybody complains about prescription prices, they look at the pharmacist, which is the most logical place to look because we're the ones who handed them the bottle.

The industry actually, they're the culprit, but they have such a huge political lobby, we're basically at their mercy.

When they get a patent for a new drug or chemical, they've got a 17-year license to charge whatever they want. They can charge $15 a pill. They can charge $100 a pill. They've got a patent and nobody can compete with that chemical molecular moiety without infringing on that patent.

The other issue is what they call a class of trade discussion. First of all, our biggest enemy sometimes isn't our competition, but it's our government. Right now, people are sending their prescriptions to Canada. Because the same drug they sell to us for $10 a pill, they sell it up in Canada for $5 a pill. Well, why wouldn't they go up there to get it?

Does the FDA do anything about it? We write letters. Thankfully, maybe it's just kind of an irony or a coincidence that when Pfizer sells Lipitor up there, 40 percent less than they sell it here, they get hurt, too. So all of a sudden, they're on the same page with us on this. I think that's going to be resolved.

TH: So if the manufacturer has the patent, why aren't they charging 100 percent in Canada and 100 percent in the U.S.?
DH: You've got to ask them that question. They think the Canadians, since they have a national health insurance program, they have a bid process, so you have to ask them why they don't honor the same prices in Canada as they do here. I don't know. We've asked that.

The answer is a matter of what they call class of trade issue. It's a price discrimination policy.

TH: You mention government. I want to ask you about city government. Over the years you have been critical of city government as it relates to the former pedestrian mall, Town Clock Plaza, and opening of Main Street. While the city was debating whether to open up the plaza, you ended up closing your store downtown. Main Street has been open, eight months or so now. Have you entertained any thoughts about opening up on Main Street now that there is a street out here?
DH: Well, first I'd like to back up a bit here. "Critical" is a little strong. Maybe the correct term is "accountable." I believe the pedestrian mall was an idea born as a reaction to business moving "West" in the city. I have thought and continue to think it was a bad decision. But none of us can say, "Hey, we've always made great decisions." I've had to close stores before, obviously not the result of a good decision. You correct it, you do the best you can and you move on. You don't dwell on it. So I really don't dwell on Main Street much anymore.

I knew right away when it (urban renewal) happened, when I came home to visit from college in 1969 and '70 that this was going to be a disaster. Why would you destroy all those buildings and think you were going to create something to compete with Kennedy Mall? It was the craziest thing. It never worked. It was terrible.

People say, "Oh, it will never come back." To heck it won't come back. It may not come back in the same form or the same function, but it has the potential of coming back. It's just a shame we don't have all the infrastructure that was built and so unique to take advantage of.

We have the entrepreneurs, we do have the people that would do it.

So I look at it and say well I was probably, and I'm proud of it actually, I was one of the most long-standing, consistent voices: "Just let us have our street back." And I was the first one up front, I was front and center taking pictures last year (when Main Street opened). This thing finally coming to an end. It was like a legacy to me. It was like a rite of ...

TH: Vindication?
DH: Yeah, it was. And I was very excited about it. The part that pleases me the most is that there's an opportunity. Not that it's all going to happen overnight or this thing is going to be the living, breathing end. Many, many people who opposed opening it, who are friends of mine, say, "Dick, you know, this is pretty nice." I say, "It is nice." It's handsome, it's unique. We need some stores. We need some businesses.

I haven't had an opportunity to rent my space to a couple of places that we really would be extremely excited to have downtown and they need parking. They need customer parking. And they need the parking between U.S. Bank and my building. Now it's just a bunch of nothing. Just a couple of planters.

I've approached the city. How about turning that into surface parking for this business I want to put here? Not that I want to put here, but that I would rehab the building and make available to them. "Oh, we've never really never talked about it." I said, "Well, let's talk about it, because right now, it's just nothing and it could be customers."

But our position probably is that we probably wouldn't put a drug store down here. We feel there's a demand for some convenience foods and convenience for the people that work down here. But they're restricted in the amount of time they actually can shop.

There are businesses that could survive and succeed down here. I think they're largely in the entertainment side, food and beverage and some convenience foods-type things.

I fully expect that a year from now, you'll come in here and I'll have that whole main floor space (of the former store) rehabbed with new store fronts and three tenants. But it takes time. I have had a lot of interest.

TH: It's interesting that you think that a drug store down on Main Street wouldn't work.
DH: It's interesting that when we were here, as drug store volumes go, you have to do about $2 million or $3 million at least to make a drug store profitable. When I was here, I could never really get to the critical mass. , I sold a lot of popcorn and I sold a lot soda pop and I sold a lot of lottery tickets and things like that, but I could never really sell the whole mix, the whole drug store mix.

TH: But you're optimistic about downtown.
DH: Yeah, I am. I am. I don't think we'll be here every again, with the drug store, but I think someone will be.

TH: You were born in Dubuque, grew up in Dubuque, came back to Dubuque. Are you concerned that Dubuque is not able to retain as many of its young people?
DH: Yeah, I'm really concerned about that, not only from just a Dubuque perspective, but also from a state perspective.

We have a tremendous educational system in Iowa. We have a very strong private college consortium. We have three regents institutions. We educate students at a very reasonable price. Sixty-six percent of our regent institution grads leave the state. The great brain drain.

What do we do to keep them here? I believe very strongly that young people who are graduating from college or universities within our state and choose to stay in Iowa, that they would get some sort of a tax credit - $2,000 credit off their taxes every year for five years that they stay in the state. After five years, if they want to leave, great. But most people within that five-year period will submit enough relationships and find enough good reasons to stay in Iowa that they'll stay.

But we also need to create some better housing and, for lack of a better term, cultural changes, to be perceived as being a cool place to live. I really think of entertainment and the places that we enjoy.

TH: Maybe you answered this question when you talked about bringing Keith on board and opening up a little more time for yourself. But if there was thing still that you could change about your job, what might it be?
DH: You know, I have the perfect job. I love my job. I love the people I work with. I love my life. I wouldn't change a thing.

TH: Not one thing?
DH: Well, little things that are insignificant things, but I would spend so much time messing around with government problems and competition problems, but that's part of the deal.

I don't think anybody has as good a job as I do. I really truly believe that, Brian. I have a perfect life. It's become that. It's taken me 30 years to get to this point, but I mean jeepers, it's great. I love getting up in the morning, taking my morning run. It's pathetic how good I've got it. It really is. It's pathetic. Nobody should have it this good. I'm in good health. I'm always in good spirits. My kids are great kids. I don't know. It's "Ozzie and Harriet." It's "Leave It To Beaver." It's something.

Copyright: Copyright 2003 Telegraph Herald